Jindal Steel And Power Ltd

NSE:JINDALSTEL

Earnings Call Transcript 2021-Q3

[Satish Kumar]

On behalf of InCred Capital, I welcome you all to the Q3 FY'21 in the Jindal Steel & Power results. And we have Jindal Steel & Power management and Head of Investor Relations, Mr. Nishant Baranwal with us. I'll now hand over the conference to Mr. Nishant Baranwal. Over to you, Nishant.

[Nishant Baranwal, Head of Investor Relations]

Thank you, Satish. Good day, everybody. We welcome you all to JSPL's conference call to discuss our third quarter results. We are today joined by our Managing Director, Mr. V R Sharma; our Chairman JPL as well as Director Finance, Mr. Akhauri Sinha. And I would like to also introduce our CFO, Mr. Hemant Kumar. Just to give you a brief on Mr. Kumar. Mr. Kumar has close to 3 decades of experience, with more than a decade with JSPL itself. He's also work the companies like Hero Group, Dalmia, HPCL, to name a few.Mr. Kumar has experience in cross-functional domain actually ranging from corporate finance, treasury, M&A, capital markets, compliance, systems, risk management to name a few. With this, I hand over the call to Mr. V R Sharma for his opening comments. Thank you.

[Vidya Rattan Sharma, MD & Additional Executive Director]

Good afternoon, everyone. Ladies and gentlemen, it's my pleasure to be with you once again. The company has done wonderfully well in Q3. As you know, that we opened the country with a COVID situation in April 2020. And the during COVID, the entire country was in the lockdown, but JSPL decided to continue the operation. And that has given us the dividend and these dividends are coming now in a big way.So we did our ever highest production and our higher sales as well as our highest EBITDA in Q1, that was INR 2,375 crore. Then Q2 surpassed the EBITDA of Q1 that was around INR 2,700 crore. We also surpassed the production and sales of Q1 than in Q2. And then again, in Q3, we surpassed the EBITDA of Q2 that is now at a level of on consol basis, that is INR 4,000 crores plus. And we are seeing that month-on-month basis, the company is going in the right direction. We started with 1.63 million tonnes in Q1 production in sales, 1.84 million in Q2, 1.93 million and we are hopeful that in Q4, we'll be in a position to reach level of 2 million tonnes. And whatever we promised to the Street a year back that we'll be reaching somewhere about 7.4 million to 7.5 million tonnes in the year ending by March 2021. And we'll reach to those figures of 7.5 million tonnes. This is what we are expecting. The market is excellently well. Market is good.The demand pullers are European countries as well as Southeast Asian countries. We are exporting a substantial quantity now, once again, in the export market, the hot-rolled coil prices worldwide has recorded ever highest benchmark.Today, in Europe, because of the second wave of COVID, the demand has increased. The countries like Italy, like France, Denmark, Australia (sic) [ Austria ], Germany and France. And also Spain, and they are buying in bulk, and the demand is pretty high. The selling price in these countries today is about $816 to $820 a tonne, which is much higher than the domestic price in India.Similarly, the Chinese government, they are not exporting much to the international level, so which has created a huge gap from the countries, those who are dependent on China. So now they are banking upon the countries like India, Iran, Russia and Ukraine. Since Iran is under sanctions by UN, so not many countries are buying from Iran. So their preference goes to India because Russians and Ukrainian mills are also facing a threat of COVID 2 wave as well as the extreme bad weather conditions are forcing them not to supply too much of quantities to the world market.So India has become a hotspot in terms of sourcing the steel. And the Indian steel industry is getting dividend of that. We are in a product of very high value-added engineering products, whereas we have created a very fine balance in between value addition and value engineering. And this is the reason we are getting a sizable quantity of orders at a very good price from Europe.Of course, the steel -- as a whole, the steel market in India has also grown up, the steel prices have gone up because of the pent-up demand, which has come. Rightly said by madam Mrs. Nirmala Sitharaman about a month back that the pent-up demand has come up. And today, Indian projects are consuming lot many steel as well as cement, so that they can meet out their targets because most of the projects which were halfway during the COVID time, they want to complete during these stipulated period so that they can reduce their losses or they can make some profit.So this is the reason the demand has come up in a big way. Thanks to government of India and our honorable Prime Minister for declaring the Aatmanirbhar Bharat policy. This policy has given a straight impact to the Indian steel industry, and we are now in a position to supply steel to various projects, which are coming forward. So the issue is now, of course, the iron ore prices have also gone up in last quarter. And NMDC has increased the prices. OMC has increased the prices and finally, the iron ore prices have gone up. But this is international phenomena. It is not a domestic phenomenon.The international steel prices have gone up. International iron prices have gone up from $140 to $165, it touched also $170. Now in last 10 days' time, we are seeing some softening, but that was $3.50 per tonne in last week and this week is about $1.25. Total about is $4.75. So still, the iron ore is at about $165 to $167 per tonne, these are defined so 60 or 61 grades.Now coming back on the coking coal, we -- the steel industry, we enjoyed the last quarter because the coking good prices were low. So we have booked coking coal till April or May of 2021. So our supply chain is very well in line with our policies. And now the coking coal prices started moving up. So we have now started thinking as to how to start our coking coal mines in Australia as fast as possible and how to ramp up the production in Mozambique. So today, coking coal prices are $130 FOB. It used to be about $99 or $100 FOB about a month back. So the increase is about $30 or $31 per tonne, which is giving us an attraction to restart our mines. And those mines in Australia. So hopefully, we'll be -- our first vessel carrying the coking coal will be touching the port in the early June 2021.We have the stocks available today up to May, and we'll be maintaining a good flow of coking coal from our own mines in Mozambique as well as in Australia. And also we have anthracite mines in South Africa. All these 3 mines will be feeding coking coal and crystalized products to us. Hopefully, we'll be self-reliant from June onwards. Maybe we will be buying a little quantity because at the moment, we are buying about 6 million to 6.5 million tonne. Like we'll buy from outside, maybe at about 2 million, 2.5 million tonnes and balance 4 million tonnes will be from the local sources from our own sources. So will be -- we are on a path of getting self-reliant.As far as the iron ore is concerned, since we are lucky that we are sitting in the iron ore hub of India, where the maximum iron ore is existing, and mining is being done. More than 120 million tonne of mining is done over there. So we are in Orissa. So we have 3 phases of working. One, we -- our own mines that is Tensa mines, where we produce about 3.1 million to 3.2 million tonnes as per EC norms available. Another is we have some stocks lying in our SMPL premises, that is -- this SMPL premises, we have now about 4 million, 4.5 million tonne. And this 4 million, 4.5 million tonne of the total quantity, which is available today, this will be consumed over the next 2 quarters. So we are comfortable for the next 2 quarters. Then another good factor is that we have a long-term agreement with OMC, that is Orissa Mining Corporation, and they are supplying regularly to us. There is no problem, no dearth of iron ore.Of course, the prices are up, but so are the prices of the steel. So we have also signed an agreement with NMDC so that our Chhattisgarh plant can be fed substantially from NMDC side from Bacheli and Jagdalpur and that is also feeding us in a good way.We have also made some arrangement in Jabalpur. Jabalpur in Central India, where the iron ore beneficiation plants are already existing, and we are meeting out all demand. So in a nutshell, we are not looking any shortage of iron ore in the next 2, 2.5 years' time. In the meantime, we are also scouting for the iron ore mines, if we can get at the right price then definitely we'll do it.SMPL, we have a long-term agreement with them. We are one of the 21 customers of theirs. So they are feeding us, they are meeting out their commitment to us. There is no problem at all.So as far as the raw material side is concerned, basically 2 major raw materials, one is coking coal, the other is iron ore, we are comfortable. The other consumables sector like refractory and other consumables that we have lined up. We are not dependent on China now. We are buying our refractory from Austria, Spain and Brazil. And this is where we feel that we are overall self-reliant in terms of not banking upon the Chinese supplies. So this is what the overall scenario. The numbers are in front of you, and we are expecting a very good quarter, that is quarter 4 and followed by quarter 1 and quarter 2 of the next year. So the Street has shown a lot of confidence in us from INR 63 per share in April, you have seen that the share move -- share prices have moved to INR 305, barring today's stock market down because of profit booking done by people yesterday and day before yesterday. And -- but yes, there is normal in such kind of situations. So we feel that the company is in a very, very strong footing.As far as the human resources are concerned, fortunately, I'm glad to tell you that not even a single case of COVID today existing in any of our plants, so all of the plants are working very well. There's no issue. And we are working with the government as to how we can contribute in the growth of the country. Country is looking for 300 million tonnes steel by 2030, and we are intent. Yes, we can be part of country, but there are 3, 4 points, what we have raised to the government: Number one, there should be a structured institution for the steel industry and coal sector industry in times to come to reach to 300 million tonnes by Indian steel producers, number one.Number two, any advantage given to the fresh investors as a first-time plant or a fresh plant or a new location like from 25% corporate tax to 15% corporate tax, we are expecting government should also give to the brownfield projects, which is very much in demand today. And the entire steel industry is looking that if the government allows for the brownfield projects expansions. Also the same SOPs what they are offering to the new investors, and I think this will be excellent.So today, the shortfall is about 164 million tonnes and if 164 million tonne shortfall to be bridged then at least we need 16 or 17 plants of 10 million tonnes each. And if we say 5 million tonne each plant, then we need about 32 to 33 plants in this country, which is an uphill task today. If we don't do then by 2025 will be importing steel worth of $50 billion. And if it is still not done by 2030, we'd be importing steel of about $150 billion. I think no government can compromise on these things because $150 billion of goods, if you start importing 2030 or $150 billion to $170 billion of goods, you start importing 2025 that will totally imbalance the situation.So steam, energy, power, everything drives the economy. So lucky we are that we are in both big drivers that is steel and power. And this is the reason we are expecting that the country will definitely grow and company JSPL grow. We are not a commodity steel player, we are producing steel for Indian railway.We are producing steel for the Power Grid Corporation of India. We are producing steel for the shipbuilding, war shipbuilding. We are producing steel for the cryogenic plants and cryogenic storage plants, so we are a little different than our peer group because we are not in a product, which is commodity.So this is the reason -- the value addition from one state to another state that plays a very vital role. So we have devised a mechanism in our company as to how to keep a proper balance in between value engineering and value addition. And this is what we are doing. Our honorable Chairman, Mr. Naveen Jindal, he has already told us that we have to keep on reducing our loan or debt burden. And this is the reason that from opening of more than INR 35,000 crore, we have come down to INR 25,240 crores now.And we are expecting that by year 2022, we should bring it down to INR 15,000 crores or below comparing to -- or seeing the conditions as of now at par, the -- in overall barometer. And our EBITDA should be more than INR 15,000 crores. And hopefully, by 2022, will be doing a sales turnover of about INR 50,000 crore. So the slogan -- company slogan now is 15, 15, 50, and this is what we are aiming. And if we do this with the help of all of our investors and support from the government of India, with the Aatmanirbhar approach, what Government of India has taken. And the support -- the kind of support the Government of India is giving for the new projects I think we will be amongst the top 7 companies, private sector companies in the country. Keeping away the public sector group, but the domestic private companies we'll be in the top 7 companies.Today, I'm also pleased to inform you that worldwide, our rating has improved. We are 15th company in the world today as a steel producer in terms of effectivity, efficiency and cost of production. And hopefully, we will be coming to 2-digit or single-digit immediately, maybe in 10 or #9 in the world. So today, if you see JSW is at about 9, and Tata Steel is at 10. So I think our rating will come maybe at 8, 9 or 10 number in next 1 year time. So this is what we are aiming and contemplating that as to how to reach to those levels.Finally, if you see overall power business, power business has also done extremely well. And you are seeing that the power -- PLF has come to about 56% to 58%. And finally, we are getting our coal mines that is JPL. JPL mines is likely to start somewhere about 6 months down the line or maybe 8 months down the line. So this is all from my side. I'll request my colleague, Mr. A R Sinha, who is Chairman of JPL and also Director of Finance, JSPL, to give elaboration on JPL. Thank you.

[Akhauri Rajesh Sinha, Director of Finance]

Good afternoon, gentlemen. Good afternoon, gentlemen out there. Let me start with wishing you a great 2021 and hope that all well at your end like Sharma, our MD, said that we have -- there's a situation here where we do not have -- a good situation, where we do not have any COVID case in our company, anywhere in the plant, head office anywhere.I hope you people are also safe. I don't feel very happy to say that the challenges, which we had in the last 2, 3 quarters in the power sector in India, we continue to see the same challenges. And in fact, the challenges are becoming more and more acute in my opinion, when we go forward. The challenges with regard to the exchange price on the spot exchange market, the challenges related to the availability of the midterm and the long-term PPAs, the challenges of DISCOM dues. And just to elaborate on this, the power demand remains quite modest. The -- in 2021, the demand in the country. As of November, I'm giving you this figure, is just 314 billion unit. Just 6% to 7% more than the last year. So there is hardly any impressive increase in the demand. And if we look at the prices which were there on the spot market in the last 3 quarters, there has not been much increase.In the first quarter, the average rate was about INR 2.40 kilo per watt. And in Q3, it is INR 2.52 per kilowatt. So average for 9 months is hovering around INR 2.47 per kilowatt. The PPA status remains a challenge because no new PPA has been find, neither in the midterm or the long term. DISCOMs are not in a position to find the long-term or midterm PPAs. We are still struggling with the 420-megawatt PPA, which we have won quite some time back now. Though we have not given up hope, but we see this as a big challenge.DISCOM dues continues to be a challenge for us. And the figure we have as on November 20 that the dues of DISCOM against the gencos has gone up to and stands at about INR 1.2 lakh crore, which is a substantial amount, and it is impacting all the gencos very, very adversely. One redeeming feature was the support, which came from the central government, which announced after approval of the Parliament. Infusion of about INR 90,000 crore for taking care of the DISCOM dues. Out of that, good thing, which happened with JPL and with other generators also. That from our total dues in the first tranche, we received INR 430 crore.Still, our dues with DISCOM and especially with TANGEDCO, continues to hover around INR 1,800 crores, INR 1,900 crores, which we find it as a challenge to recover, but we are hopeful that part of it should come by way of tranche II. Now coming to some of the important figures relating to our production and our income figures. Though, we generated about 120% more million units in the third quarter and our PLF also went up from 25% to 56%, but our NSR, NSR -- and this is -- again, not very happy to share this figure. NSR came down despite a higher production, despite higher exports selling on the exchange from INR 3.83 last year, the NSR per kilo watt has come down to INR 3.27, recording a negative growth of 15%, and this is mainly on account of a higher pay, which we did, just to keep our plant going on the spot exchange.And like I gave you the figure earlier, that the spot exchange rate, the rate which we get at spot exchange is pretty competitive. On the income front, I will concentrate to the EBITDA. Our EBITDA compared to last quarter recorded just a modest growth of 18%, and we recorded a negative -- our net profit is negative by INR 32 crores. And on quarter-on-quarter basis, again, our generation went up, like I said, by 52% on quarter-on-quarter basis. PLF also went up from 37% to 56%, reporting a growth of 19%, but our NSR went down compared to the last quarter, that is from INR 3.62 to INR 3.27. And this is something -- this is bothering us as this is impacting the overall sustainability of the company.We made a provision of INR 327 crore this quarter. This was a combination of 2, 3 provisions. This was continuing on our balance sheet for quite some time and we wanted to make our balance sheet cleaner. And after discussion with the auditors, we crystallized these figures. And then it was the -- finally, the cautious call was taken by the management to make a provision in quarter 3. We may have to make such provision in quarter 4 also, but we have not been able to crystalize those figures because we are still looking at those figures. And one, the figures are -- they did take some shape and get this slide nicely, then we'll be able to take a call on that.Other thing which we wanted to bring to the notice of you all was that JPL has decided to issue RPS, redeemable preference share, of INR 7,000 crores this will be done in 2 tranches. In tranche I, we will be issuing for INR 4,000 crores. And in tranche II, it will be for INR 3,000 crores. So overall, I'd say that while JPL standalone is doing well so far, if operations are concerned, but we are constrained by these factors which are beyond our control, like realization of dues, like less demand for power in the country. So -- and whole scenario has become slightly better now, but still coal procurement is a challenge because logistics in those areas, I mean, where we have our coal plant where most of the coal plants are located. The infrastructure continues to be very poor. So logistics continues to be a problem like before.So overall, I will say that it is a modest kind of a scenario. And I'm not very optimistic and upbeat that going forward, things will really improve drastically. But of course, I always keep my fingers crossed. So thank you very much for the patient hearing, and back to Nishant, please.

[Nishant Baranwal, Head of Investor Relations]

We will request our CFO, Mr. Hemant Kumar to provide commentary on the financials.

[Hemant Kumar, Chief Financial Officer]

Good day, everyone. Let me start by wishing you a very happy new year. Hope all of you are safe and well.Although first half of this year was extremely challenging as the pandemic caused disruption of unprecedented level. Demand recovery has been equally surprising though helping JSPL to end the year 2020 on a solid footing. But steel industry still struggles from high input prices, especially iron ore. If we see domestic demand for most of our products has been rising month after month in the second half of the year, which is reflected in our rising share of domestic volumes and a better product mix. Continuing on our strong performance in the first half of financial year 2021, we are pleased to report our numbers for the third quarter of financial year 2021.We are happy to report that company posted a record standalone steel production of 1.93 million tonnes in quarter 3 financial year '21 compared to 1.84 million tonnes in quarter 2 financial year '21 increase of 5%, and 1.61 million tonnes in quarter 3 of financial year '20 increase of 20%. JSPL standalone steel sales also increased by 12% on a year-on-year basis to 1.87 million tonnes in quarter 3 financial year 2021 compared to 1.6 million tonnes in quarter 3 financial year 2020. On a 9-month to 9-month period, we have seen around 14% growth in production, 5.43 million tonnes in financial year 2021 versus 4.76 million tonnes in financial year 2020. And 15% sales growth can be observed by seeing our 9 months performance. As our Angul plant's capacity ramps up, we will see volume metric expansion in our Indian sales. So the theme or the business direction is absolutely intact, I would like to assure you in this call.I further would like to move to our consolidated financials of the company. The company has reported gross total income of INR 12,070 crore in quarter 3 of financial year '21 versus INR 9,951 crores in quarter 2 financial year '21, increase of 21%.And quarter-on-quarter, INR 8,430 crore in quarter 3 of financial year '20, increase of 43% on a Y-o-Y basis. I'm extremely happy to report EBITDA of INR 4,252 crores in quarter 3 of financial year 2021 versus INR 2,702 crores against INR 903 crores in quarter 2 financial year 2021 as against INR 257 crores of loss in quarter 3 financial year '20.On the full year basis, gross total income stood at INR 30,071 crores in versus INR 26,633 crores, increase of 13%. EBITDA for the 9 months, INR 9,157 crores against INR 5,085 crores last year and PAT of INR 6,026 crores against INR 656 crores in the last financial year. This relates to our consolidated financial performance.If we move to standalone financials we have reported gross total income of INR 9,907 crores in quarter 3 of financial year 2021 versus INR 8,679 crores of quarter 2 financial year '21. And EBITDA of INR 8,171 crores against INR 4,215 crores last year. If we move to our overseas performance, I would like to mention Mozambique business sales has grown up by 16% on a quarter-on-quarter basis. And similarly, if we talk about our South African mines, the sales has increased by 20% on Y-o-Y basis. I'm again pleased to inform you in Australia, there is an update in December, the development application on Russel Vale, revised preferred underground expansion project, UEP, has been approved by independent planning commission of New South Wales IPC subject to certain conditions.On a net -- I'm again pleased to inform you on a net debt basis at the end of this quarter, we are reporting a net debt figure of INR 25,621 crore, which reflects INR 3,289 crore of reduction over the debt -- net debt figure reported in the last quarter of INR 28,910 crores. We are pleased to highlight that in the 9 months of this year, we have been able to reduce our net debt by INR 10,298 crores, which is in excess of the guidance which we have been sharing over the call with our investors and our financial partners.This is in line with our vision to bring the overall debt level down. Now our debt-to-equity gearing stands at less than 1. I just wanted to give you on interest cost also. If you see our results, interest costs also gradually coming on quarter-on-quarter basis, whether it's a standalone or is a consol basis. As you know, JSPL was AA rated company in the past, and debt rating of the company is progressing well. I would like to assure you that we are pleased to inform you that CARE and ICRA upgraded the rating by 2 notches from BBB-minus to BBB-plus on stable outlook.Further, company's rating has been moving to regain its rating, which the company used to enjoy earlier, which will definitely result into a cost reduction in interest, at least to the extent of 30-odd percent, which will result into the interest saving of around INR 80 crores to INR 100 crores going forward per month. And we have learned in the last couple of years, the company endeavors will remain for CapEx of the internal approvals going forward. It's pertinent to note.Now let me shift my commentary to CapEx side as we have been sharing with you every quarter, the management team has been focusing on a much disciplined response to manage fiscal environment we have in line with expectations and very minimal CapEx. Our guidance has been in between INR 600 crores to INR 800 crores in the financial year '21. We are in line with that guidance going forward. We have incurred a CapEx of around INR 304 crore, which is mainly sustaining CapEx.With respect to, I would like to move to Oman divestment. We are very, very confident that it will happen by March 2021. It's just we are waiting for certain permission for approvals. And I hope that it will get concluded by March '21. So with these headlines commentary, I would like to complete my initial commentary. Over to all of you for your question and answers. Thank you very much.

[Nishant Baranwal, Head of Investor Relations]

Operator, we would now request for question and answers.

[Operator]

[Operator Instructions] The first question is from the line of Ritesh Shah from Investec.

[Ritesh Shah, Analyst]

Congratulations on excellent sort of numbers. Sir, first question is on JPL structuring. I just wanted to understand the rationale of creating that structure. And specifically, if the company has the option to reduce debt at JPL itself, what is the need of giving this 5% coupon through the parent? Why not retire debt which is, let's say, 8%, 9% plus? That's the first question.Sir, if you can explain it very simplistically on what are the line items we should take on the balance sheet on the back of debt and it means that there is no refinancing of debt? If you would provide clarity over here, that would be very useful, sir. That's the first question.

[Akhauri Rajesh Sinha, Director of Finance]

The first -- coming to you, the first part of your question that why we are doing it. We have not been able to give any dividend to our shareholders for the last 4 years. Prior to that, we have been consistently giving dividends for our shareholders.So as a onetime [ many ], it was decided that some incentive needs to be given to our shareholders who have been very patient with us for quite some time and so that was the main rationale for declaring the present shares. And like I said, that it is not related to debt. This will be done in 2 parts. And as per the standard accounting standards, the part 1 will be treated as part of the liability. I mean -- but from the point of view of calculating the tangible net worth. The remaining part of INR 3,000 crores will part of [indiscernible] equity. So it is not going to impact any of the important parameters on the balance sheet. We will continue to be in compliance with all our covenants, so far, our debts are concerned. And the operation will continue as it is.Now coming to the second part of your question about the divestment thing, I will -- I'm not in a position right now to tell you that divestment will take place. But definitely, we are exploring all the options available on the table and for the right price, we will take our call when to divest and how to divest. I mean, like you know, everything worldwide is up for sale for the right price.So we'll also wait for the right price. As of now, we are not running a process, but we are open to it.And other thing is that the flagship company is our steel company. And like I said in my commentary that the thermal energy outlook for the country, in fact, worldwide, I'll say -- wide about other country. So worldwide also, the thermal energy prospect is not very bright. And we have also taken a conscious decision to focus more on our steel business. So this will also give a stream of income to our parent company, JSPL, coming out of this RPS. So in the entire scheme of things, this fits in very well. Focus will gradually shift from thermal to steel, and we want to remain focused on developing our steel business while continuing with the JPL also, but about -- and about which we are not very optimistic about the future.

[Ritesh Shah, Analyst]

Okay. My second question is for Sharma ji. Sir, what we figured out is we had groundbreaking of a new pellet plant in Orissa. I just wanted to understand how much is the CapEx over here, we haven't spoken about it. Does that mean that we are also looking for a slurry line and probably another phase of expansion of 3 million, 3.5 million tonne, if one looks at mass level? That's the second question.And if it is long term, say, over 3 years, if you can quantify some numbers and time line, that would be great. And just a follow-up to the prior answer. My sense would be that it would definitely impact certain covenants given we are moving from general reserves to another line item. So why is it that it would not impact the covenants? .

[Vidya Rattan Sharma, MD & Additional Executive Director]

Good, Ritesh. Thank you so much. So first of all, your question regarding pellet plant groundbreaking ceremony or pellet plant project. You see, we have a continuous desire and continuous efforts to reduce our cost of production. Because at a point, sometimes, it comes at the cost of production or cost of operations cannot be reduced. So for that, you have to go for a different strategy. So strategy today is why to -- why to utilize very high Fe contents of iron ore, why not to enrich the low-grade iron ore and convert into pellets. So this is what is tempting us to bring this particular investment as a pellet plant. And of course, this will be fed through a slurry pipeline.Today, our cost of transporting pellets or iron ore is around INR 1,200 to INR 1,500 per tonne. We want to bring it down to INR 150 per tonne. So the net impact will be -- the gain will be about INR 1,200 or INR 1,300 a tonne, this is where we want to incur this situation because we have already reached to a saturation point that if we do not do such kind of arrangements of logistics, we cannot reduce the cost further. So this will definitely increase our bottom line. This will increase our profitability, and this will give a very healthy sign to the company. So this is the reason that the pipeline and the pellet plants are offering, and this is what we are going to do. Hope I answered your question.

[Ritesh Shah, Analyst]

Yes, sir. And on the covenant?

[Vidya Rattan Sharma, MD & Additional Executive Director]

Sorry, could you repeat your question, Ritesh, please?

[Ritesh Shah, Analyst]

Sir, my question is specifically on the covenant. I think Mr. Kumar made a comment that the covenants won't get impacted. Pardon me for my ignorance, but if you're moving something from general reserves and we are creating 2 separate line items over here on cost equity and probably a liability. Shouldn't it impact the covenants or the gearing ratio? I'm assuming this is not any fresh debt, it is just a reclassification on the balance sheet.

[Akhauri Rajesh Sinha, Director of Finance]

No, no, no, there's no fresh debt which we are going to incur. That is for sure. And the other -- thought I have already answered that it is going to be in 2 tranches. And as per the Indian accounting standard, how the balance sheet treatment will be given. This I've already clarified in my earlier reply. So I have nothing more to add here. Thank you very much. If you need any further clarification, please, please contact up our Investor Relations Head, Mr. Nishant.

[Operator]

The next question is from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, Senior Vice President]

First question is continuing on the previous question on the CapEx, is it possible to quantify what sort of investments we are looking for the pellets slurry pipeline? And also since we are reaching to our deleveraging and leverage target, I mean what happens over the next 2, 3 years, are we looking in terms of further forward integrating into finished field at Angul?

[Hemant Kumar, Chief Financial Officer]

Yes. You're right. Each company, when it has a comfortable situation, they would definitely like to do plowbacking -- plowing back the funds. There is no doubt into it.So first of all, we have to understand whatever aim is. Our aim is 15, 15, 50. That's our aim. Now meeting out this aim, if we -- we are left with some surplus, then we'll keep on investing in the projects. And why projects and which projects? That is a big question. The projects which can definitely bring down our costs and which can make us the lowest cost producer of steel in the world will continue to be on our agenda. So this is -- the slurry pipeline and the pellet plant is part of that. There are 2 reasons. One, the environment-friendly transportation, as you know, the slurry pipelines are buried under the ground. There is no open threats or open trains or good trains or carrying the iron ore fines, transporting all the way to 400, 500, 600 kilometers or 800 kilometers, and then bring to the plant and then again loading, unloading, it creates a lot of problem.So 3% to 4% is the wastage in terms of loss during transit and handling. And over and above, there's a loss of about additional INR 1,200 to INR 1,300 in terms of transportation. So we want to be environment-friendly first. Number two, we want to be a cost-effective company. So this is one reason.The other reason, as I told you, pellets, when we produce, we have our own DRI plant, which consumes pellets and also blast furnace. So we want to feed our blast furnace and pellet plants with the best of the pellets available in the world, so that the efficiencies can be improvised. And once the efficiencies are improvised, then we'll get at reach INR 500 to INR 700 per tonne lower steel cost, this is the reason that we are looking at this. Now as far as the investments are concerned, we are going with a humble beginning. One, we'll not compromised on our INR 15,000 crores EBITDA level, one. Number two, over and above, whenever we get the chance, we'll keep on spending some money. Maybe some INR 50 crores, INR 70 crores, INR 100 crores on month-on-month basis. Finally, say about maximum INR 1,000 crores or INR 1,200 crores. This was in the annual -- now there are no more actions in plan as of now.

[Sumangal Nevatia, Senior Vice President]

Understood. Understood. Sir, second question is on the volumes. This year, we are pleased to achieve our guidance of 7.5 million tonnes. And next year, you had said earlier, about 8.5 million tonnes. So for this year, what will be the mix in terms of semis, rails and finished loans? And how do you see this mix, say, in percentage terms changing in FY'22?

[Hemant Kumar, Chief Financial Officer]

You see this is a very on the spot decision, sometimes it is a strategic planning. And overall plans are, like, for example, we had a 7.5 million tonne of overall plan. And in overall plan, we thought that, okay, this much will be finished production, this will be category A, category B, category C products. But all of a sudden, you have to have a navigational changes in life.So like all of a sudden, we're stuck with the COVID lockdown situation on 22nd of March when government declared that they will lock down. So we were in a big fix, what to do? The problem was how to survive. So how to run the plant, how to keep 1 lakh of people, those who are working directly, indirectly alive, so that was a navigational change.I mean it's like a flight which hits to the high clouds, then you know the route has to be changed. So is the planning. So we changed the plan from domestic market to the export market. And in export markets, we, again, change the plan that instead of looking for the rail buyers, looking for the plate buyers, looking for the hot-rolled coil buyers whatever -- whosoever comes in line, we should supply to them. And we started selling semis, we started selling pig iron. We started selling plates, hot-rolled coil and everything.So the product mix, it is very difficult today to decide. But yes, over a period of situation, whenever some situation comes we'll address the situation accordingly, and we'll change our product mix as and when required. The other second factor is that which product mix gives us the best EBITDA. And like you see, the rails are the high-valued items. The shipbuilding plates are high-valued items, similar big players required for different applications are very high-valued items. The situation is changed because of the government spending.So whenever we feel that government is spending in these particular products, government is keen to spend on these products, then definitely we'll change our product mix accordingly. Like Power Grid Corporation of India, tomorrow, if they go for 1,100 -- sorry 1,200 kV lines or 750 kV lines as against 440 kV or 230 kV lines, then immediately the strategy will change, we'll go for the heavy angle irons to meet out the demand of the country. So finally, the project is -- the product lines are different. The value addition is different. So this, I told in my opening remarks that we are finding a right balance in between value engineering and value addition. So our aim is to bring to the adequator that, yes, the value engineering and value addition, they go line-in-line, side-by-side, over and above each other. So this is what we are planning.

[Operator]

The next question is from the line of Amit Dikshit from Edelweiss.

[Amit A. Dixit, Financial Analyst]

Congratulations for a very good set of numbers that was significantly ahead of consensus. I have a couple of questions.The first one is on power business. I'm actually quite surprised by the circumspect tone you have. If you adjust for provisions, then in last 2 quarters, we are actually doing an EBITDA of INR 500 crores to INR 550 crores on average. And our realization has also picked up -- sorry, generation has also picked up. As to the plan that we have talked about on our captive coal line also. So how do you see this business going ahead? I typically would believe that things should get better here on, but quite surprised about the circumspect tone.So can you let us know what could be the sustainable EBITDA per quarter going forward that we can look at? In the past, it has been around INR 300 crores to INR 350 crores. But in the last 2 quarters, I have seen, despite all the challenges you have mentioned, it is closer to INR 500 crores to INR 550 crores? That is the first question.

[Akhauri Rajesh Sinha, Director of Finance]

Yes. See, you rightly said that standalone is -- there's nothing wrong in the company. But the question is, how do we control the macro factors which are impacting us. The macro factors, which are impacting all the gencos, not only JPL. We do not have control over the state's response.Like TANGEDCO, it is now everyone knows what's the scenario like. So though we are making -- they're generating -- we have generated EBITDA of average of about INR 300 crores to INR 350 crores on quarter-on-quarter basis in the current financial year. There has been some demand also. But the question is that going forward, if the overall demand, you know what is the per cap pellet city consumption in India and which is almost going very, very marginally, it's going up for the last so many years now.So the macro factors are something which are really bothering us. And there were certain items on the balance sheet, which the auditors were -- wanted us to look at it seriously. And since there has been a consistent performance now, not much of an improvement. If you look at the EBITDA, it has been more or less constant.So we decided that we need to provide for those liabilities, which have now crystallized. And where we do not have any option, but if you need to clean the balance sheet we have to provide for. So that's why like I said in my earlier commentary, that a conscious decision was taken for providing for this long outstanding items. It was basically -- I will give you the component also, it was a late payment surcharge, which the concern agency refused to pay. We cannot go to a court of law because they are our regular customers. So we've decided to provide for that.Then there are change in law because of that, certain amount was there, which they told in no uncertain terms, that is going to be very difficult for us to pay you. So these things were recognized and a conscious decision was taken to provide for. So I'm not saying that going forward, there is a very bleak kind of a scenario, I'd say that is a modest kind of scenario. Thank you.

[Amit A. Dixit, Financial Analyst]

Okay. My second question is on Jindal Shadeed transaction again. So there is a set of related party transactions that Jindal Shadeed has made with the promoter group that would be settled for USD 226 million. So is it possible to throw some light on these related party transactions, which is the counterparty involved and all?

[Hemant Kumar, Chief Financial Officer]

Basically, the loan is a total consideration deal done $250 million. It has a 2 part. And this -- I just request Nishant to address this. Yes, Nishant?

[Nishant Baranwal, Head of Investor Relations]

Thanks for the question. So as you know, the equity portion was $251 million, out of which $25 million how to was to come as cash while the other $226 million was to be assumed as liabilities by the buyer. Now out of the $51 million, once the 49% has happened around about $12.24 million has come home. While another 12.75% will flow in, once the 51% gets done. Also, along with that, the $226 million worth of liabilities would be assumed by the buyer.

[Amit A. Dixit, Financial Analyst]

Nishant, my question was precisely of that who is the counterparty to that $226 million? Somebody would just said cash.

[Nishant Baranwal, Head of Investor Relations]

No, no. Amit, so let me take a step back. So if you were to look at the original structure, right, JSPML, which is the Mauritius entity, owed $226 million, which has to be given to Oman. So that had to be returned to Oman by Mauritius. What has happened is that the new buyer has actually assumed those liabilities and is going to return those $226 million to Oman. So that is the part of the equity concentration that was taken care of.

[Operator]

The next question is from the line of Vikash Singh from PhillipCapital.

[Vikash Singh, Vice President of Metals & Mining]

Sir, I just wanted to understand, if I look at the JPL of -- per unit EBITDA. So either after adding the one-off, sir, it came somewhere around INR 1.5 while the realizations have gone down by INR 0.30. So which portion has contributed such a tremendous improvement in the overall performance?

[Hemant Kumar, Chief Financial Officer]

Yes. I'm sorry. Please repeat your question. Sorry about that.

[Vikash Singh, Vice President of Metals & Mining]

So if I add back the one-off in the EBITDA in JPL and calculate the EBITDA per unit it came to around -- it actually improving around INR 0.30 on a quarter-on-quarter basis, while the realization was down by the similar amount. So this INR 0.60 improvement on adjusted basis on the quarter-on-quarter basis, just wanted to understand, is it because of the we are -- why is it so? Because your coal cost would have gone up also as per your past guidance?

[Akhauri Rajesh Sinha, Director of Finance]

No. Coal cost has not gone up. Coal cost per kilowatt has come down by just INR 0.10. So it's a very modest decrease in the coal cost because of better availability of the coal costs. So that is not fair to say that the coal cost has gone up. EBITDA, of course, has gone up. But if you look at the proportion, the million units which we have sold and the EBITDA, which we have made, if you look at the proportion compared to what we -- the EBITDA was in 2020 -- '19, '20, you will see that in that proportion, EBITDA is not going up because the sale is more on a spot exchange, where the rate we are not getting.Just to keep our boilers up, we are -- and because there is some better availability of coal, we are selling more, because PPA, the PPA remains fixed at 810 megawatt for long now. There's absolutely no PPA. So what is the option for us? There's absolutely no option for us, but to force ourselves to sell on the spot exchange when we are not getting the rate. So if we do that calculation and you'll see that overall, it is not going in the same proportion like the way our -- the fresh figure is going down. So that is why this position is there, what you're talking about.

[Vikash Singh, Vice President of Metals & Mining]

Sir, but it does not explain the INR 0.50 improvement in overall profitability is. So just wanted to understand why that profitability is up by INR 0.50 while the additional, like you rightly said, would have come at a lower pricing?

[Akhauri Rajesh Sinha, Director of Finance]

Yes. See, like I told you that profitability is up because the demand has gone up. And we have sold more units because there is a demand on the spot exchange, which was not there last year. It was not that the spot exchange itself was not active, so we have been selling this more on the -- but overall, if you look at the demand and our sales figure, it will look much better. But if you look at the overall yield, the yield is going down because we are selling more on the exchange now.

[Vikash Singh, Vice President of Metals & Mining]

Understood, sir. Understood. So my second question, yes...

[Akhauri Rajesh Sinha, Director of Finance]

Sorry, is it over or some more clarification? ?

[Vikash Singh, Vice President of Metals & Mining]

No. No, sir. Understood. Sir, my second question pertains to the steel price realization. So if you could just tell us that what is the total till June in your blended product portfolio price increase you have witnessed? And how much is this factor till 3Q '21?

[Akhauri Rajesh Sinha, Director of Finance]

Sorry, June, can you repeat, please?

[Vikash Singh, Vice President of Metals & Mining]

So if you could tell us that since June till today, what is the overall blended price increase you have seen in your product portfolio? And how much of this factor till 3Q?

[Akhauri Rajesh Sinha, Director of Finance]

No, we cannot speak on June because April, May, June was a lockdown situation and the country was passing through a very bad time. There were no demand from the country. Even July and August mid till that time, there was no demand in the country. There was hardly any demand. So we are all banking upon the exports. So the export prices, if you see then and exports price now there's a delta of about $150 or maybe $200 when we compare export-to-export, apple-to-apple. But the Indian steel prices were stable or little I would say, has started moving up in the month of October, November, December because the iron ore prices have gone up. The iron ore prices have gone up by 180% in India, and that has created the havoc worldwide.And the -- so the situation in the international scenario, from $110, $115 it reached to $168. So that impacted the entire steel industry globally.The another point was on in October first week, the scrap prices are $305, it reached to $515 in January 2021. So that impact was $200 -- more than $200. If you said that itself is about INR 14,000 to INR 15,000. So at the moment, the steel -- the iron ore prices, scrap prices figure and DRI prices, they started moving, the steel prices also started moving in line with the raw material cost.

[Vikash Singh, Vice President of Metals & Mining]

Okay, sir. Sir, just to rephrase in other words, so your current NSR, how it is -- what percentage is above than your 3Q average NSR? If you put this ...

[Akhauri Rajesh Sinha, Director of Finance]

The current NSR is -- we say the average of Q3, which average of Q3 is INR 41,500 approximately. And if you said it standalone December, yes, it will be about INR 46,000. January will remain almost same. We have booked order until 28th of February 2021. We -- our order book is full. We are exporting also. We are giving domestic supplies also. We are in line with the NMDC prices and OMC prices. If the prices go down, then definitely price will go down for steel as well. If the NMDC price increases, then definitely, the steel prices will increase. If they're stable, it will remain stable. Hope I answered everything.

[Operator]

The next question is from the line of Ashish Kejriwal from DAM Capital.

[Ashish Kejriwal]

Two questions, sir. One, you mentioned about coking coal inventory, which we have already so many. So is it safe to assume that we have taken it at roughly around $100, $105 only?

[Hemant Kumar, Chief Financial Officer]

Yes. Your question is correct because we did a lot of spot buying during this time when the prices were in 2 digits, $90, $92, $95, $99. And we also did some deals at $107, $110. Now the price is $130. The total pipeline we take, it is about up to May we are fully covered. And as I told you, we are going to start our operations in Australia. And we are going to ramp up Mozambique and South Africa, our own mines. So we will be self-reliant, barring some about 25%, 30%. We'll keep on buying from different grades of coal from the other sources. But finally, we'll be swapping the overall business. So that our cost of steel manufacturing and overall input costs are kept in control. And this is what the company is aiming too.

[Ashish Kejriwal]

Okay. And sir, secondly, what we are hearing in the secondary market that long product prices or TMT bar prices have started falling, and it has fallen by INR 4,000 to INR 5,000 in the last one week. Though our product portfolio also consists of rails and others, which is somewhat sticky in nature. But at least in TMT, which we have around 25% of our portfolio, are we seeing any sense of price declining? And if it is there, how much it could be?

[Hemant Kumar, Chief Financial Officer]

You see, as I told you, these are the navigational decisions what any industry has to take. So the point is not why the secondary market prices are going down. We have to find the reason. The reason is, today, the scrap prices internationally have corrected by $50. So this $50 impact is a huge impact. And that is creating the price reduction.But the iron ore prices have not gone down. DRI prices have not gone down. Coking coal prices, on the other hand, has started increasing. So there's 2 different theories today working in the country.So the -- yes, you are right. There's a softening of prices [ indoors ] in TMT and some other products, long products. But as you have already mentioned that we are not in the product, which are competing with either the secondary producers or even their peer group. So we are producing, we are the only company today in the country making 550 grade of TMT rebars. No other mills produces this commercially. We produce only. And this is one reason.The other is we have a great mix of products like, as I told you, rails, structures, fabricated structures, we have placed specialty plates, hot-rolled coil. We are the widest hot-rolled coil in the country. And for us, we are the second or third widest hot-rolled coil producer in the world, that is 3,000 millimeter wide.So overall, we are expecting a good time. And yes, if there are some corrections to be taken by us, we'll take the corrective managers as and when required. So these are the navigational decisions that we'll take in times to come.

[Ashish Kejriwal]

Sir, when we are talking about that till February our order book is full. So how much percentage mix or you can say out of total volume, how much is already booked for this? [indiscernible]

[Hemant Kumar, Chief Financial Officer]

Actually this is a secret business plan. We normally don't disclose. But to give you a very broader idea, we are now banking upon the export orders from Saudi Arabia, from the Middle East, like Qatar, Oman, Bahrain, Kuwait and UE. And also for the hot-rolled coil orders from Italy, France, Spain, Switzerland and Germany, and these are the market pullers. So we have booked ourselves till end of February. And hopefully, in next few days' time, we'll book for March also. So our Q4 will be healthy again.

[Ashish Kejriwal]

So sir, is it fair to assume that our blended realization in Q4 should be at least INR 5,000 higher than Q3, assuming we have already booked till February, we are not seeing any major decline in pricing?

[Hemant Kumar, Chief Financial Officer]

See, this is very difficult to predict all these things, INR 5,000, INR 4,000. Because since morning, we also read in many of the newspapers such kind of predictions. But very difficult as a responsible company in the country, we cannot say that today INR 5,000 prices will go up or go down because that impacts the entire nation.So as I told you, these are the navigational decisions. If we hit with bad weather, yes, we will take a longer route. If we are hit with a fine weather, tailwinds, then definitely we will reach to destination faster. So these are the decisions what we take. It is operational decisions, situational decisions. So -- but I'm not supporting the idea that INR 5,000 will increase or the INR 5,000 per tonne there will be increase in the EBITDA or something. No. I'm not supporting that. We are a responsible company. We have to be very responsible in giving the figures and datas. Thank you.

[Operator]

Ladies and gentlemen, due to time constraint, we will take that as the last question. I now hand the conference over to Mr. Satish Kumar for closing comments.

[Satish Kumar]

On the behalf of InCred Capital, I thank you all for participating in this call. I thank the management and Nishant for giving us this opportunity for hosting this call. Over to you, Nishant, for any closing comments.

[Nishant Baranwal, Head of Investor Relations]

Thank you, Satish. Thank you, InCred, for organizing this call. I would request MD sir, for any final comments. Sir?

[Vidya Rattan Sharma, MD & Additional Executive Director]

Thank you, friends, ladies and gentlemen. It was a wonderful time with all of you. We have seen topsy and turvy behavior of the market during the last 9, 10 months' time. We remember the situation in March, and now we remember situation in January. We are thankful to Government of India. We are thankfully honorable Prime Minister who has brought in the COVID vaccine on time, I would say. And the results are phenomenal, lakhs of people have been vaccinated in last 1 week time.And apart from vaccinating Indians, Government of India has also sent its aid to adjoining countries like Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives. I'm sure the people those who are traveling to those countries and people those who are coming to our countries, they will be in a position to do much more business, which was limping during the COVID time. We are also thankful to honorable Prime Minister for driving his campaign of Aatmanirbhar Bharat and that has definitely given the dividend to steel industry and as the industry as a whole.So economy is moving up. We have seen that GST collection is more than more INR 1,15,000 crores. The last stipulation by Government of India, that means more and more funds will flow to the state governments. The area of concern, yes, of course, today morning revenues INR 63,000 crore is to be recovered by Maharashtra State Electricity Board from Maharashtra, and these are the ripples what my colleague, Mr. Sinha, was telling that these are the uncertain behavior. That's why -- and one of the questions, he also told that why we are moving from PPAs to the exchange because exchange, your money is not stuck up. Though you may get a little less yield, but your liquidity is well maintained.And this is what -- these are the situational decisions what company takes time to time. And I repeat, again, the 15, 15, 50 is a target, not too ambitious. It is achievable. We are already INR 12,000 crore turnover we have done in the quarter, ending December 31. So if you -- if we maintain same, we need INR 48,000 crores or INR 50,000 crores. You have seen the EBITDA levels reaching to INR 15,000 crores EBITDA is a very humble target. We can definitely achieve with support of everybody and bringing down the debt burden or the loans to less than INR 15,000 crores is our ambition, and it is achievable. You have seen in 1 year time, we reduced 9 months' and we have reduced by INR 10,000 crores.And with the kind of EBITDA level, we are going to maintain, the kind of lowest cost producer campaign that we want to be lowest cost versus the world. This is the reason we are looking for the slurry pipeline in the pellet plants, so that we can be rated as a lowest cost producer in the world. And this is what we are aiming for. I'm sure the Street will not disappoint ourselves and yourselves, state will definitely take it very positively in times to come. And we want to bring -- Naveen ji always tells that I want that the JSPL should be the highest wealth creator in world, not only in steel, but across all commodities and products. I'm sure with your support, we'll reach to that level one day very soon. Thank you so much.

[Operator]

Thank you, everybody, for joining.